MORGAN STANLEY: 'We expect UK house prices to fall as Brexit bites'

The Royal Crescent. Bath, England
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LONDON — UK house prices and transaction volumes will fall as Brexit begins to bite, according to Morgan Stanley.

A note from researchers at the bank predicts a "modest housing market correction," with prices falling 1.6% year-on-year in 2018.

It forecasts a dip to -3% in Q4 2018 when GDP growth will likely be at its weakest as Brexit approaches.

Morgan Stanley also predicts transaction volumes will fall by 1% year-on-year in 2018.

'A modest house price correction'

Morgan Stanley

The predictions are more bearish than other mainstream forecasts. Estate agents Savills predicted 2% growth in 2018, and property firm JLL predicted 1% growth in the same year.

The bank says price falls will be driven by three factors:

Weak income growth caused by above-target inflation;

Less favourable tax treatment for buyers;

Slowing population growth.

The note adds that the chronic lack of supply in the market "should work against any sustained downturn," however. It says the drivers of the slowdown will be partially offset by loose monetary policy.